Why would a consumer purchase a vehicle and two days later file Chapter 13 bankruptcy? These things do happen and most likely because the debtor in bankruptcy and their attorney are not always on the same page. What is surprising in the case of In re Jones, 15-30711-H3-7, 2015 WL 1841107, at *1 (Bankr. S.D. Tex. Apr. 20, 2015) is that the court even bothered to write an opinion about the transaction that had allegations of fraud.
In that case, Chandra Jones purchased a vehicle from Randall Reed’s Planet Ford on January 31, 2015 and filed for Chapter 13 on February 2, 2015 and invoked the codebtor stay, which applies an automatic stay as to a co-debtor in cases of consumer transactions. On March 25, 2015 the debtor converted the case to Chapter 7. Regional Acceptance, the company financing the transaction, rejected the loan application and moved to lift the automatic stay to recover the vehicle. The company alleged that the debtor provided a false loan application and rejected the loan application. The debtor provided the information and the information was inputted electronically into an application. Then the debtor claims that she did not recognize any of the information in the loan application.
The bankruptcy court lifted the automatic stay for “cause” because there was no offer of adequate protection to the finance company. Under Section 362(g) of the Bankruptcy Code the movant in the motion to lift stay has the burden on the issue of the debtor’s equity in the property and the opposing party as the burden of proof on all other issues.
The term “cause” is not defined in the Bankruptcy Code is determined on a case by case basis based on an examination of the totality of circumstances. In re Reitnauer, 152 F. 3d 341, 343, n.4 (5th Cir. 1998). The totality of the circumstances in this case was simple: the debtor purchased the vehicle two days prior to filing for bankruptcy and offered no adequate protection to the lender. Debtors should check with their attorneys prior to incurring additional debt. Lenders can also move to challenge the transaction based on a false financial statement even if the debtor files for Chapter 13 or Chapter 7.